- Fed funds target lowered for the first time since the financial crisis
- Forward guidance leaves the door open to further easing
- Two FOMC voters dissented in favour of steady rates
The Fed opted for a 25 basis point rate cut today, a move that was widely expected but disappointed some market participants looking for a larger reduction (market pricing showed non-trivial odds of a 50 bp cut). As we highlighted in our preview last week, the data don’t make a clear argument for any easing, so we’re at least pleased to see that the Fed didn’t make a more dramatic move. As expected, policymakers cited global developments and muted inflation as justifying a rate cut. Forward guidance was little changed—the FOMC will “closely monitor” incoming information and “act as appropriate to sustain the expansion.” While not committing to another move, this language does leave the door open to a follow up cut (our forecast assumes another cut in September). Also of note, the Fed is ending its balance sheet reduction two months earlier than previously indicated.
